Buy Trent; target of Rs 4,800: Sharekhan

Sharekhan's research report on Trent

Trent continued to post stellar performance in Q4FY2024 with revenues growing above 50% y-o-y, while strong expansion in EBIDTA margins led to robust bottom-line growth. Revenue grew by 53.4% y-o-y to Rs. 3,187 crore, with like-for-like (LFL) growth well above 10%. Gross margins improved by 449 bps y-o-y to 45.3%. Better operating leverage aided the company to report a 477 bps y-o-y expansion in EBITDA margin to 15%, ahead of ours and the average street expectation of 13.4%. EBIDTA grew by 2.25x y-o-y to Rs. 477 crore, while the adjusted PAT grew by 2.75x y-o-y to Rs. 289 crore. An exceptional gain of Rs. 543.4 crore (Rs. 364.8 crore net of tax) includes gains realised due to reassessment of recognition of the right of use assets and corresponding lease liability.

Outlook

Trent continued its strong growth momentum in Q4FY2024 in contrast to muted industry growth, registering an over 50% y-o-y revenue growth and sharp EBITDA margin expansion during the quarter. Innovation in product portfolio, 100% contribution from own brands, aggressive store expansions, scaling up of the Star business and leveraging on digital presence will be key growth drivers in the medium term. Stock is currently trading at 50x/38x its FY2025E/FY2026E EV/EBITDA. With long-term growth prospects intact and a strong balance sheet among retail companies, we maintain a Buy recommendation on the stock with a revised SOTP-based price target (PT) of Rs. 4,800.